Sunday, September 07, 2014

Oil Theatre

Tea farms outside Shijhuo.

One of the things you get used to when you live in Taiwan is periodic hand-wringing about the state of the food supply after the periodic discovery that Someone Is Cheating. In this case the Big News is that a supplier to a major firm was using totally tainted oil....

Police and prosecutors also said two underground factories were busted on suspicion of selling processed waste oils - collected from cookers, fryers and grease traps - including to one that supplied leading food oil manufacturer Chang Guann Co. Another factory allegedly recycled grease from leather processing plants for oils used in animal feeds.

Officials said that Chang Guann then sold the oils on to at least 235 companies, including a number of leading brands, as lard-based cooking oils. They include food giants Wei Chuan, Chi Mei and Taiwan Sugar.

“The 235 firms combined bought a total of 51,981 cartons of fragrant lard oil manufactured by Chang Guann between March 1 and Sunday. Fifty-five of the companies are based in Greater Kaohsiung, 30 in Greater Tainan and 21 in New Taipei City,” FDA Director-General Yeh Ming-kung (葉明功) told a press conference in Taipei.

The best part of this is the prosecution. How much bail would you set for this serial poisoner? Well, I'm sure whatever number you picked, it was higher than the local prosecutors:

Kuo Lieh-cheng (郭烈成), 32, [underground oil company owner] was arrested after the scandal broke and was released on bail of NT$50,000 (US$1,672) on Thursday. Prosecutors filed a request with the court on Friday to detain him again, since it was discovered that he had withdrawn his total savings of NT$860,000 after he was released on bail on Thursday.

How about that? Bail equals one month's salary for a high school teacher. It's like they are begging him to flee. If he flees, he can't testify that everyone in the supply chain knew what was going on, and he can then be scapegoated by everyone. And the big brands can keep their brand images intact. Which is the most important thing, of course.

They don't teach you in B-school that one of the most important functions of supply chains is laundering. By the time that toxic oil climbed up out of the underground factory and into cans of Wei Chuan meat or croissants at 85C, it had been laundered by being turned over through four or five companies and had become good oil. Yet down at the bottom of the supply chain everyone had to know what was going on. The people who bought from the underground factory had to know what they were getting, because that is the nature of the System -- everyone knows what is going on, but no one talks about it or does anything. But because the underground factory owner will be blamed, everyone else will escape blame and the System will continue, intact. Periodic jail terms for underground factory personnel are just the cost of doing business for the System, and anyway it won't affect shareholders and CEOs who (it goes without saying) buy all their food imported.

Langdon Winner noted decades ago in Autonomous Technology that this laundering effect of distance is inherent in big technosystems (like supply chains) -- the people at top have deniability since they are too distant from the front lines ("we don't know what's going on down there") while the people at the bottom are only following orders. The System just moves forward, autonomously, leaving its bewildered, unknowing victims in its wake.

The whole thing should be shut down, from the grease factory to the CEOs of the big firms who were too lazy to properly test their oils, and everyone carted off to jail. But one of the ways our criminal justice system protects criminals is that only the people at the bottom will be held responsible -- individuals are held responsible, but structures? Never.

There's not much else to say. I'd like to say this will trigger change, but it won't. This kind of problem is fundamental to the System, accentuated by the fact that Taiwan must import almost all of its edible oils and fats. The oil company will shut down, move to a new location and re-open to do the same thing. Or some other underground oil company doing the same thing will take the business. In a few months everything will be back to normal, and the public and media will be haring off after the next big thing....

Really, I don't even know why I am writing this post._______________________[Taiwan] Don't miss the comments below! And check out my blog and its sidebars for events, links to previous posts and picture posts, and scores of links to other Taiwan blogs and forums!

It's a good post; it suggest that the apparent failure of the current set of laws and regulations governing food safety can be explained in terms of perverse incentive structures, i.e. it is set up so as to encourage the passing of the buck.

By implication, any attempt to solve the problem must therefore attend to the pattern of incentive structures that would follow a given set of reforms. This is an important point not to be sniffed at.

You are not going to drain a swamp of corruption with a mere blog post, but that doesn't mean such posts aren't worth writing.

I'm kind of curious why mega-corporations like Wei Chuan, who are very much vertically-integrated, are not producing lard themselves. Surely it has to be more economical for them to produce lard than some much smaller company. Are they just outsourcing things that are expensive to do to standard for the sake of deniability?

It's too bad that lying & cheating are the way of life for many Taiwanese and Chinese people. There is so much potential here, but both of these societies will ALWAYS be second rate because of this selfish attitude. Just today in the TT there was another article about Taiwanese cheating on tea sales. Tea companies accused of mixing imported stock (my girlfriend has been telling me this for months, but I didn't see any proof until now).

I have to admit that this argues strongly for Fagan's purist libertaria ideas. Instead of the companies involved paying bribes or campaign contributions to hush things up, a market system might punish them monetarily.

On the other hand it might just change who gets bribed with the money going to the company people trust to watch these things instead of it going to government people.

The most important player has been omitted from this scenario: the "consumer". Ultimately, each of us must bear some responsibility for what we feed our bodies. When our prime concerns are price and taste, and we show a preference for "foods" higher up the supply chain, we thus provide incentive for this system to continue. Perhaps radical change in our collective thinking and behavior would be more effective than laws, courts, and jail. And speaking of our collective thinking:

"Really, I don't even know why I am writing this post."

This comment really struck home because it is precisely the sentiment (cynicism, no?) that has rendered me incapable of resuming my own blogging efforts. Yet I found the post offered insights - despite my jaded perspective - thus serving to remind me why sharing is important: building our collective awareness.

"This kind of commentary" doesn't even appear in the English language newspapers, never mind the Chinese ones.

@Readin

I believe a market system could fly if it could first get off the ground, so to speak. The problem is that right now it can't get off the ground partly because of a likely systemic corruption among and between the families of producers and various people in and around government, and partly because of the existing government regulation and the undead popular support for government regulation despite its repeated high-profile failures. In that respect, I think the people occupying the higher education institutions must be charged with a high proportion of the blame.

@Mike FaganHow would you see a market solution here where the problem may be corruption? Someone at some level screwed up, perhaps deliberately because of a bribe. A private company certifying the food safety could have the same thing happen - a low-level employee or group of employees gets bribed. In a private company, all you can do is fire said employee.- hardly a disincentive if the size of the bribe is large. The government has more leverage because can threaten that employee with jail time for taking bribes.

I think the solution is a simple as making it a private matter or making it a government matter. No matter which of those approaches is taken, you have to develop a culture in which dishonesty and corruption is recognized as a sin and a serious moral failing rather than something a clever person takes advantage of and gets away with.

I suspect there is a strong argument to be made that a freer market would encourage such a culture.

Two places where there was a dramatic change in the way a culture handles corruption are Hong Kong and Taiwan. Hong Kong and Taiwan were both changed from the top-down to greatly reduce corruption. HK by the Brits and Taiwan by Japan. In the case of Taiwan, corruption was re-introduced just as successfully by the Chinese KMT. I don't know of any places where a free market resulted in a cultural change that reduced corruption. The Anglo culture that is so famously low on corruption developed, I presume, over centuries - perhaps under feudalism (which is hardly a free market).

"How would you see a market solution here where the problem may be corruption?"

The problem is not corruption per se, but inadequate food regulation probably caused, in part, by corruption. This is an important point because I was not saying that market certification would suddenly uncorrupt the corrupted.

I concede that a culture of truthfulness is a separate necessary element. How to get that is another discussion. However, I think the incentives for being truthful are likely to stack up better under a competitive regulatory market than under regulatory monopoly, but it would only work if sufficient consumers value food safety enough to pay the required marginal costs.

Another aspect of the problem (inadequate food safety regulation) may be diffusion of responsibility because in a sense the FDA represents an outsourcing of responsibility for food safety regulation to the government. The public unthinkingly accepts this premise, as (very likely) do many of the senior management in the food companies. Why assume the responsibility for ensuring the quality of your products when (a) you could cut your marginal costs with decent odds of escaping scott-free simply because the FDA's resources are limited; (b) your competitors are likely doing this already; (c) you can probably limit the damage if you are caught (e.g. by passing the buck to the dirty little guy at the bottom); (d) the government is unlikely to ruin your business with massive fines; and (e) the public is likely to blame the governing party rather than you, and they will be encouraged to do so by a partisan and stupid media.

So whilst I agree that the systemic culture of corruption will likely put a glass ceiling on possible improvements, I still think there is much that could be improved even with that glass ceiling in place.

There is more than enough blame to attach to the companies and the consuming public and not just the government. In some ways I pity the people in the FDA; their job is a horrible one being one part necessary and one part impossible.

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